Wesdome 2009 Annual Report

Buildingour future

togetherWeSdoMe gold MineS ltd.

2009 ANNuAL rePort

Wesdome Gold Mines is 100% unhedged and has never hedged. our strengths

are quality gold deposits and an experienced, efficient operating team. Wesdome

gold Mines is a low-overhead, no-nonsense, owner-operated company working

for its shareholders. Wesdome gold Mines has the capacity to build and operate

underground gold mines, a rare skill in an era driven by contract mining. going

forward, the combination of increasing production, record-high gold prices,

ambitious exploration plans and a commitment to promotion should result in a

significant upward revaluation of the Company’s share price.

Contents

Message to Shareholders ...................1

2009 Highlights ................................3

Management’s Discussion and Analysis ............................................6

5-year Reserve – Production Reconciliation Table .........................17

Management’s Responsibility for Financial Statements .......................18

Auditors’ Report .............................19

Consolidated Balance Sheets ..........20

Consolidated Statements of Income and Comprehensive Income ............21

Consolidated Statements of Shareholders’ Equity .......................22

Consolidated Statements of Cash Flows ......................................23

Notes to the Consolidated Financial Statements .......................24

Corporate Information .................... IBC

2009 exceeded expectations across the board. Record production, gold prices, revenue and earnings were accompanied by successful cost control and exciting drilling results.

At Eagle River the 811 Zone opened up at depth. This zone has generated the bulk of favourable surprises over the last two years and it is very encouraging to see it extended an additional 300 metres (1,000 feet) to depth. It remains open.

At Kiena, systematic drilling is putting the flesh on the bones of our new Dubuisson discovery. Some higher grade intersections over impressive widths here have encouraged us to commence an underground exploration and development program from the 330 metre level.

Cash is piling up in the treasury putting us in an advantageous position to seek growth opportunities. The priority is a step-wise re-evaluation of our known gold assets in light of current gold prices. Work was initiated on the Wesdome project in Val d’Or and the Mishi deposit in Wawa. These offer good potential for organic growth by leveraging existing experienced workers and mining and milling infrastructure capacity in our own backyard. Acquisition opportunities which fit our regional development strategy will continue to be examined diligently and with discipline.

Although forecasting more modest production levels for 2010, we are hopeful the 811 and 808 Zones at Eagle River will continue to surprise on the upside.

We feel fundamentals have never been more favourable for the gold price and feel our leverage to gold prices has clearly been demonstrated over the last two years. It is with gratitude that the management and directors tip their hats to our miners, geologists and engineers.

On behalf of the Board of Directors,

Donovan Pollitt, P.Eng.President and CEOMarch 17, 2010

Message to Shareholders

WeSdoMe gold MineS ltd. 2009 ANNuAL rePort 1

our strength is in the experience and quality of our people.

2 WeSdoMe gold MineS ltd. 2009 ANNuAL rePort

• Productiontotals96,152ounces

• Earningsincreaseto$32.2millionor $0.32pershare

• Revenuesincreaseto$103.5million

• Cashflowfromoperationsincreasesto $41.3millionor$0.41pershare

• Cashflowaftercapitalspendingincreases to$22.1million

• Cashandbullionatmarketatyear-end increasesto$39.9million

• Totalreservesincreasenetofdepletion

• Bullioninventorygrowsto14,032ounces

Wawa Val d’Or


our success in 2009 can be attributed to strong production, high gold prices and excellent teamwork.

4 WeSdoMe gold MineS ltd. 2009 ANNuAL rePort

6

Management’s Discussion and Analysis

FOR THE YEAR ENDED DECEMBER 31, 2009

This Management’s Discussion and Analysis dated March 17, 2010 should be read in conjunction with Wesdome Gold Mines Ltd.’s (“Wesdome” or “the Company”) audited consolidated financial statements for the year ended December 31, 2009, and their related notes which have been prepared in accordance with Canadian generally accepted accounting principles (“GAAP”). This Management’s Discussion and Analysis contains “forward-looking statements” that are subject to risk factors set out in the cautionary statement below. All figures are in Canadian dollars unless otherwise stated. Additional information on Wesdome Gold Mines Ltd., including current and previous years’ Annual Information Forms (“AIF”) and other corporate information, can be found at www.wesdome.com or www.sedar.com. Wesdome trades on the Toronto Stock Exchange under the symbol “WDO”.

CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS

All statements, other than statements of historical fact, constitute “forward-looking statements” and are based on expectations, estimates and projections as at the date of this MD&A. The words “believe”, “expect”, “anticipate”, “plan”, “intend”, “continue”, “estimate”, “may”, “will”, “schedule” and similar expressions identify forward-looking statements. The Company cautions the reader that such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Wesdome to be materially different from the Company’s estimated future results, performance or achievements expressed or implied by the forward-looking statements and the forward-looking statements are not guarantees of future performance. Factors that could cause results or events to differ materially from current expectations expressed or implied are inherent to the gold mining industry and include, but are not limited to, those discussed in the section entitled “Risks and Uncertainties”. The Company does not intend, and does not assume any obligation to update these forward-looking statements, whether as a result of new information, future events or results or otherwise except as required by applicable laws.

OVERALL PERFORMANCE

The Company owns and operates the Eagle River gold mining operations in Wawa, Ontario and the Kiena Mine Complex in Val d’Or, Quebec. The Eagle River mine commenced commercial production January 1, 1996 and the Kiena mine August 1, 2006.

At December 31, 2009, the Company had working capital of $35.2 million. During the year ended December 31, 2009, revenue exceeded operating costs by $45.3 million and $14.2 million was invested in exploration and development, $0.8 million on the acquisition of exploration properties and $4.2 million in capital equipment. Cash flow from operations totalled $41.3 million before working capital adjustments and net income was $32.2 million or $0.32 per share in 2009.

The improved financial performance was driven by three key factors: 1) Increased gold sales (92,700 ounces vs. 86,100 ounces in 2008) 2) Increased gold prices realized ($1,113 per ounce vs. $931 per ounce in 2008), and 3) Stabilization in operating costs ($58 million vs. $57.4 million in 2008)

External factors which influenced results were related to general economic conditions (recession) and uncertainty in financial markets. The former served to ease labour, energy and materials costs. The latter served to increase demand for gold as an investment. We believe external factors will continue to support increasing gold prices.

SELECTED ANNUAL INFORMATION

(in thousands except loss per common share) 2009 2008 2007Total revenue $ 103,536 $ 80,961 $ 55,210Net income (loss) 32,165 9,362 (13,145)Income (loss) per common share 0.32 0.09 (0.14)Total assets 143,255 115,384 108,085Long term financial liabilities 11,997 14,316 13,864

WeSdoMe gold MineS ltd. 2009 ANNuAL rePort

RESULTS OF OPERATIONS

Three Months Ended Dec 31 Twelve Months Ended Dec 31 2009 2008 2009 2008

Eagle River MineTonnes milled 29,970 32,069 132,004 118,961Recovered grade (g/t) 13.0 11.0 14.3 13.0Production (oz) 12,503 11,301 60,754 49,660Sales (oz) 15,000 11,000 56,300 45,664Bullion inventory (oz) 12,081 7,627 12,081 7,627

Bullion revenue (thousands) 17,543 11,018 62,649 42,513Operating costs (thousands) 7,650 8,063 28,273 30,245 Mine operating profit ($m)* 9,893 2,955 34,376 12,268Gold price realized ($Cdn/oz) 1,168 1,001 1,112 933

Kiena Mine ComplexTonnes milled 89,536 49,906 302,034 241,641Recovered grade (g/t) 3.0 7.3 3.6 5.2Production (oz) 8,690 11,788 35,398 40,344Sales (oz) 9,000 10,700 36,400 40,600Bullion inventory (oz) 1,951 2,953 1,951 2,953

Bullion revenue (thousands) 10,515 10,457 40,621 37,793Operating costs (thousands) 7,204 4,597 29,746 27,127 Mine operating profit (($m)* 3,311 5,860 10,875 10,666Gold price realized ($Cdn/oz) 1,166 976 1,114 929

TotalProduction (oz) 21,193 23,089 96,152 90,004Sales (oz) 24,000 21,700 92,700 86,100Bullion inventory (oz) 14,032 10,580 14,032 10,580

Bullion revenue (thousands) 28,058 21,475 103,270 80,306Operating costs (thousands) 14,854 12,660 58,019 57,372 Mine operating profit ($m)* 13,204 8,815 45,251 22,934Gold price realized ($Cdn/oz) 1,167 990 1,113 931

*The Company has included in this report certain non-GAAP performance measures, including mine operating profit and operating costs to applicable sales. These measures are not defined under GAAP and therefore should not be considered in isolation or as an alternative to or more meaningful than, net income (loss) or cash flow from operating activities as determined in accordance with GAAP as an indicator of our financial performance or liquidity. The Company believes that, in addition to conventional measures prepared in accordance with GAAP, certain investors use this information to evaluate the Company’s performance and ability to generate cash flow.

In 2009, combined operations produced 96,152 ounces of gold, exceeding initial forecasts of 75,000 ounces by 28%. A total of 92,700 ounces were sold at an average price of $1,113 per ounce and refined bullion inventory at year end grew to 14,032 ounces (2008: 10,580 ounces).

Gold sales exceeded operating costs resulting in a mine operating profit of $45.3 million. In addition to these direct costs, other costs including royalty payments, corporate and general costs and interest costs totalled $4.8 million.

At the Eagle River mine, production continued from the high grade western portion of the mine. Grades continued to exceed expectations here. Drilling traced the 811 zone a further 300 metres (1,000 feet) to depth where it remains open. Proven and probable reserves contained ounces of gold rose 50%, net of depletion. Eagle River produced 60,754 ounces of gold from 132,004 tonnes milled at an average recovered grade of 14.3 gAu/tonne. The Eagle River mine contributed 76% of the mine operating profits this year.

The Kiena mine produced 35,398 ounces of gold from 302,034 tonnes milled at an average recovered grade of 3.6 gAu/tonne. Although mining the lower grade phase of our mining sequence, efforts to gain efficiency by increasing throughput were successful.



8

Efficiencies and cost controls reduced the overall operating costs per ounce sold to $626Cdn per ounce from $666Cdn per ounce in 2008.

On the exploration front, drilling more than replaced reserves at Eagle River and follow-up drilling on our recent Dubuisson discovery in Val d’Or generated impressive drill hole intersections, including 26.1 gAu/tonne over 10.3 metres and 16.5 gAu/tonne over 12.3 metres in holes S552 and S551, respectively (Press Release dated September 8, 2009).

A stepwise re-evaluation of our known gold assets, in light of current gold prices, was initiated with the purpose of examining organic growth potential. Work was initiated on the Wesdome property in Val d’Or and the Mishi deposit in Wawa.

SUMMARY OF QUARTERLY RESULTS 2009(in thousands except per share data) 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter Total revenue $ 28,218 $ 21,489 $ 30,209 $ 23,620Net income 13,162 3,610 7,817 7,576Net income per share – basic and diluted 0.12 0.04 0.08 0.08

2008 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter Total revenue $ 21,830 $ 22,180 $ 20,714 $ 16,237Net income 6,291 2,151 763 156Net income per share – basic and diluted 0.06 0.02 0.01 0.00

FOURTH QUARTER

The fourth quarter was very strong as both the gold price and sales rose.

Wesdome’s production totalled 21,193 ounces. Sales during the quarter totalled $28.2 million with 24,000 ounces sold at an average price of $1,169 per ounce. The cost of sales, or cash cost, was $619Cdn per ounce.

The Eagle River mine produced 12,503 ounces of gold from 29,970 tonnes milled at an average recovered grade of 13.0 gAu/tonne. Sales totalled 15,000 ounces at an average realized price of $1,169 per ounce. Cost of sales, or cash cost, averaged $510Cdn per ounce. Mine operating profit for the quarter was $9.9 million.

The Kiena mine produced 8,690 ounces from 89,536 tonnes milled at an average recovered grade of 3.0 gAu/tonne. Sales totalled 9,000 ounces at an average realized price of $1,166 per ounce. Cost of sales, or cash cost, averaged $829Cdn per ounce. Despite processing low grade material, the Kiena mine generated a mine operating profit, or gross margin, of $3.3 million.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2009, the Company had working capital of $35.2 million, an increase of $22.1 million from year-end 2008. The Company invested $14.2 million in exploration and development, $0.8 million on the acquisition of exploration properties and $4.2 on capital equipment for a total of $19.2 million, compared to $14.0 million in exploration and development and $2.3 million on capital equipment for a total of $16.3 million in 2008.

At December 31, 2009, the Company held 14,032 ounces of gold inventory carried at a cost of $12.1 million. The market value at December 31, 2009 was $16.2 million.

The Company believes it has sufficient capital resources to cover its operating and capital cost requirements in 2010.

Production planned in 2010 should generate operating cash flow, even at gold prices well below those currently being realized.



Payments Due by Period (in thousands)Contractual Obligations Total Less than1 year 1 – 2 years 3 – 5 years After 5 years Equipment leases $ 2,578 $ 1,400 $ 1,153 $ 25 -Convertible debentures 12,844 765 12,079 - - $ 15,422 $ 2,165 $ 13,232 $ 25 -

TRANSACTIONS WITH RELATED PARTIES

In fiscal 2009, the Company paid $5,000 (2008: $10,702) to a company whose managing partner is a Director of the Company and $98,500 (2008:Nil) to a company whose president is an Officer and Director of the Company.

These transactions were in the normal course of operations and were measured at the exchange amounts.

CRITICAL ACCOUNTING ESTIMATES

(i) Mining properties, plant and equipmentIn accordance with the Company’s accounting policies, amortization commences when a property is put into commercial production and is calculated on the units-of-production method over the expected economic life of the mine. Depreciation is calculated once the asset is placed in service, using units-of-production method over its estimated useful life.

Mineral reserve and mineral resource estimates are not precise and also depend on statistical inferences drawn from drilling and other data, which may prove to be unreliable. Future production could differ radically from mineral reserve estimates for the following reasons:

(a) Mineralization or formation could be different from those predicted by drilling, sampling and similar tests;(b) The grade of mineral reserves may vary significantly from time to time and there can be no assurance that any particular level of gold may be recovered from the mineral reserves;(c) Declines in the market price of gold may render the mining of some or all of the Company’s mineral reserves uneconomic; and(d) Increase in costs may render the mining of some, or all, of the Company’s mineral reserves uneconomic.

Any of these factors may require the Company to reduce its mineral reserve and mineral resource estimates, change its production estimates or increase its costs. Changes in reserve quantities would cause corresponding changes in amortization expense in periods subsequent to the reserve revision, and could result in impairment of the carrying amount of property, plant and equipment. Management conducts periodic reviews of its mineral properties to determine if write-downs are required. In 2006, the Company wrote-down the McKenzie Break property to reflect the sale agreement entered into with Britannica Resources Inc. Since 2006, no write-downs were required.

(ii) Reclamation and closure costs obligationsEnvironmental laws and regulations relating to the protection of the environment are continually changing and generally becoming more restrictive. Wesdome has made, and intends to make in the future, expenditures to comply with such laws and regulations. The Company has recorded a liability and corresponding asset for the fair value of obligations for reclamation and closure costs. The Company estimates its future closure costs for the Eagle River mine, Mishi mine and the mill to be $0.8 million with an additional $0.7 million for the Kiena complex.

(iii) Future income tax assets Future income tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and on unclaimed losses carried forward and are measured using the substantively enacted tax rates that will be in effect when the differences are estimated to reverse or losses are estimated to be utilized. A valuation allowance is recognized to the extent that the recoverability of future income tax assets is not considered more likely than not. The Company has future tax assets associated with its deductible temporary differences and non-capital loss carryforwards, which are available to reduce taxable income in the future.



10

The Company evaluates the likelihood of using all or a portion of the deductible temporary differences and loss carryforwards based on expected future earnings, the utilization of the deductible temporary differences and the expiry of its loss carryforwards. Based on this information, the Company determines the appropriate amount of income tax valuation allowance that is required to reduce the value of its total deductible temporary differences and loss carryforwards to an amount which it estimates it can more likely than not utilize. As of the end of the current year, the Company determined that it could more likely than not utilize a substantial portion of its tax loss carryforwards and deductible temporary differences based on expected future earnings and the expiry date of its loss carryforwards and, therefore, an income tax valuation allowance was not required. Any changes in estimates would affect the income tax expense on the consolidated statement of income and future tax assets on the consolidated balance sheets. If the actual amount differs from the current estimates, the future tax value of these deductible temporary differences and loss carryforwards may change significantly and the Company may incur a non-cash tax expense.

(iv) Significant estimates and assumptions, also those related to the recoverability of mining and exploration properties, include estimated useful lives of equipment, valuation assumptions, determination as to whether costs are capitalized or expensed and stock compensation. While management believes that these estimates and assumptions are reasonable, actual results could vary significantly.

FINANCIAL INSTRUMENTS – DISCLOSURES AND PRESENTATION

Financial instruments disclosures requires the Company to provide information about: a) the significance of financial instruments for the Company’s financial position and performance and b) the nature and extent of risks arising from financial instruments to which the Company is exposed during the period and at the balance sheet date, and how the Company manages those risks.

Financial Instruments – Fair ValuesFollowing is a table which sets out the fair values of recognized financial instruments using the valuation methods and assumptions described below:

(in thousands) 2009 2008 Carrying Fair Carrying Fair Value Value Value ValueFinancial assetsHeld-for-trading: Cash and cash equivalents $ 23,702 $ 23,702 $ 8,029 $ 8,029 Restricted funds 2,588 2,588 2,303 2,303Loans and receivables: Receivables 4,022 4,022 4,205 4,205Available-for-sale: Marketable securities 211 211 44 44

Financial LiabilitiesOther financial liabilities Payables and accruals 7,322 7,322 7,865 7,865 Convertible 7% debentures 9,483 11,104 9,413 9,838

Determination of Fair ValueThe fair value of a financial instrument is the amount of consideration that would be agreed upon in an arm’s length transaction between willing parties. The Company uses the following methods and assumptions to estimate fair value of each class of financial instruments for which carrying amounts are included in the Consolidated Balance Sheet as follows:

Cash and cash equivalents and restricted cash – The carrying amounts approximate fair values due to the short maturity of these financial instruments.



Receivables – The carrying amounts approximate fair values due to the short maturity of these financial instruments.

Marketable securities – The carrying amounts are measured at fair value with mark-to-market gains and losses excluded from net income and included in other comprehensive income until such gains or losses are realized. At December 31, 2009, marketable securities have been valued using the quoted market price to reflect an unrealized gain of $68,000 (2008 unrealized loss: $157,731).

Other financial liabilities – Payables, accruals and the convertible 7% debentures are carried at amortized cost. The carrying amount of payables and accruals approximates fair value due to the short maturity of these financial instruments. The carrying amount of the obligations under capital leases approximates fair value based on an initial fair value of the obligation. The fair value of the convertible 7% debentures is based on the quoted market price.

The fair value hierarchy for financial instruments measured at fair value is Level 1 for cash and cash equivalents, restricted cash and marketable securities. The Company does not have Level 2 or Level 3 inputs.

Financial Risk ManagementThe Company is exposed to a number of different risks arising from normal course business exposures, as well as the Company’s use of financial instruments. These risk factors include: (1) market risks relating to commodity prices, foreign currency risk and interest rate risk; (2) liquidity risk; and, (3) credit risk. The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework and establishes and monitors risk management policies to: identify and analyze the risks faced by the Company; to set appropriate risk limits and controls; and to monitor risks and adherence to market conditions and the Company’s activities.

1) Market RiskMarket risk is the risk or uncertainty arising from possible market price movements and their impact on the future performance of the business. The market price movements that could adversely affect the value of the Company’s financial assets and liabilities include commodity price risk, foreign currency exchange risk and interest rate risk.

(a) Commodity price riskThe Company’s financial performance is closely linked to the price of gold which is impacted by world economic events that dictate the levels of supply and demand. The Company had no gold price hedge contracts in place as at or during the year ended December 31, 2009.

(b) Foreign currency exchange riskThe Company’s revenue is exposed to changes in foreign exchange rates as the Company’s primary product, gold, is priced in U.S. dollars. The Company had no forward exchange rate contracts in place as at or during the year ended December 31, 2009.

(c) Interest rate riskInterest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

Financial assets and financial liabilities with variable interest rates expose the Company to cash flow interest rate risk. The Company’s cash and cash equivalents include highly liquid investments that earn interest at market rates. Fluctuations in market rates of interest do not have a significant impact on the Company’s results of operations due to the short term to maturity of the investments held.

2) Liquidity RiskLiquidity risk is the risk that the Company will not be able to meet its obligations as they fall due. The Company manages its liquidity risk by forecasting cash flows from operations and anticipated investing and financing activities. The Company believes it has access to sufficient capital through internally generated cash flows and equity and debt capital markets. Senior management is also actively involved in the review and approval of planned expenditures.



12

The following table shows the timing of cash outflows relating to trade payables and accruals, capital leases and convertible debentures:

(in thousands) <1 Year 1-2 Years 3-5 Years Over 5 Years Accounts payable & accrued liabilities $ 7,322 Capital leases $ 1,400 $ 1,153 $ 25 Convertible debentures $ 765 $ 12,079

3) Credit RiskCredit risk is the risk of a financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligation. The Company minimizes its credit risk by selling its gold exclusively to financial institutions with forty-eight hour terms of settlement. The Company’s accounts receivable consist primarily of government refunds and credits. The Company estimates its maximum exposure to be the carrying value of cash and cash equivalents, accounts receivable and funds held against standby letters of credit. The Company manages credit risk by maintaining bank accounts with Schedule 1 Canadian banks and investing only in Guaranteed Investment Certificates. The Company’s cash is not subject to any external restrictions.

Comprehensive IncomeComprehensive income represents the change in equity of an enterprise during a period from transactions and other events arising from non-owner sources including gains and losses arising on translation of self-sustaining foreign operations, gains and losses from changes in fair value of available for sale financial assets and changes in the fair value of the effective portion of cash flow hedging instruments.

RISKS AND UNCERTAINTIES

The operations of the Company are speculative due to the high risk nature of its business which is the operation, exploration and development of mineral properties. In addition to risks described elsewhere herein, shareholders should note the following:

Nature of Mineral ExplorationThe exploration for and development of mineral deposits involves significant financial risks which even a combination of careful evaluation, experience and knowledge may not eliminate. While the discovery of an orebody may result in substantial rewards, few properties which are explored are ultimately developed into producing mines. Major expenses may be required to establish ore reserves, to develop metallurgical processes and to construct mining and processing facilities at a site. It is impossible to ensure that the exploration programs planned by the Company will result in a profitable commercial mining operation.

Whether a mineral deposit will be commercially viable depends on a number of factors, some of which are the particular attributes of the deposit, such as size, grade and proximity to infrastructure, as well as metal prices which are highly cyclical and government regulations. The exact effect of these factors cannot be accurately predicted, but the combination of these factors may result in the Company not receiving an adequate return on invested capital.

Mining Risks and InsuranceThe business of mining is generally subject to a number of risks and hazards, including environmental hazards, industrial accidents, labour disputes, encountering unusual or unexpected geologic formations, cave-ins, flooding and periodic interruptions due to inclement or hazardous weather conditions. Such risks could result in damage to, or destruction of, mineral properties or producing facilities, personal injury, environmental damage, delays in mining, monetary losses and possible legal liability. Insurance against environmental risks (including potential for pollution or other hazards as a result of disposal of waste products occurring from exploration and production) is not generally available to the Company or to other companies within the industry.

Government Regulations and Environmental MattersThe Company’s activities are subject to extensive federal, provincial and local laws and regulations controlling not only the mining of and exploration for mineral properties, but also the possible effects of such activities upon the environment. Permits from a variety of regulatory authorities are required for many aspects of mine operation and reclamation. Future legislation and regulations could cause additional expense, capital expenditures, restrictions and delays in the development of the Company’s properties, the extent of which



cannot be predicted. In the context of environmental permitting, including the approval of reclamation plans, the Company must comply with known standards, existing laws and regulations which may entail greater or lesser costs and delays depending on the nature of the activity to be permitted and how stringently the regulations are implemented by the permitting authority. While it is possible that the costs and delays associated with compliance with such laws, regulations and permits could become such that the Company would not proceed with the development or operation of a mine, the Company is not aware of any material environmental constraint affecting its properties that would preclude the economic development or operation of any specific property.

In Ontario, the Company has obtained approval for its closure plan for the Eagle River mill, Eagle River mine and the Mishi-Magnacon complex and has provided security of approximately $0.8 million to cover estimated rehabilitation and closure costs. In Quebec, the Company has obtained approval for its closure plan for the Kiena mine and mill and has provided security of approximately $0.7 million to cover estimated rehabilitation and closure costs. In the event of any future expansion or alteration of a mine on the Eagle River property or the Kiena mine, the Company would likely be required to amend its closure plans and could also be required to provide further security. The Company believes it is currently in compliance in all material respects with the legislation described above.

Reliance on ManagementThe Company is heavily reliant on the experience and expertise of its executive officers. If any of these individuals should cease to be available to manage the affairs of the Company, its activities and operations could be adversely affected.

Economic ConditionsGeneral levels of economic activity and recessionary conditions may have an adverse impact on the Company’s business.

Mineral Resource and Mineral Reserve EstimatesThere are numerous uncertainties inherent in estimating mineral resources and mineral reserves, including many factors beyond the Company’s control. Such estimation is a subjective process, and the accuracy of any mineral resources and mineral reserves estimate is a function of the quality of available data and of the assumptions made and judgements used in engineering and geological interpretation. Differences between management’s assumptions, including economic assumptions such as metal prices and market conditions, could have a material effect in the future on the Company’s financial position and results of operations.

CompetitionThe mining industry is intensely competitive in all of its phases, and the Company competes with many companies possessing greater financial resources and technical facilities in its search for, and the acquisition of, mineral properties as well as the recruitment and retention of qualified employees with technical skills and experience in the mining industry. There can be no assurance that the Company will be able to compete successfully with others in acquiring mineral properties, obtaining adequate financing and continuing to attract and retain skilled and experienced employees.

Conflicts of InterestCertain officers and directors of the Company are, or may be, associated with other companies that acquire interests in mineral properties. Such associations may give rise to conflicts of interest from time to time. The directors are required by law to act honestly and in good faith with a view to the best interests of the Company and to disclose any interest which they may have in any project or opportunity of the Company. Not every officer or director devotes all of their time and attention to the affairs of the Company.

InsuranceThe Company carries insurance to protect against certain risks in such amounts as it considers adequate. Risks not insured against include environmental pollution, mine flooding or other hazards against which such companies cannot insure or against which they may elect not to insure.

Additional Funding RequirementsFurther exploration on, and development of, the Company’s mineral resource properties, will require additional capital. In addition, a positive production decision on any of the Company’s development projects would require significant capital for project engineering and construction. Accordingly, the continuing development of the Company’s properties will depend upon the Company’s ability to either generate sufficient funds internally or to obtain financing through the joint venturing of projects, debt financing, equity financing or other means. Although the Company has been successful in the past in obtaining financing through the sale of equity securities and the issuance of debt instruments, there can be no assurance that it will obtain adequate financing in the future.



14

CHANGES IN ACCOUNTING POLICIES

On January 1, 2009, the Company adopted the Canadian Institute of Chartered Accountants (“CICA”) Handbook Section 3064, “Goodwill and Intangible Assets”. The new standard replaces the previous goodwill and intangible asset standard and revises the requirement for recognition, measurement, presentation and disclosure of intangible assets. The adoption of this standard did not have an impact on the Company’s consolidated financial statements.

In March 2009, the CICA issued EIC Abstract 174, “Mining, Exploration Costs” (“EIC-174”) which supersedes EIC Abstract 126, “Accounting by Mining Enterprises for Exploration Costs” (“EIC-126”), to provide additional guidance for mining exploration enterprises on the accounting for capitalization of exploration costs and when an impairment test of these costs is required. EIC-174 is applicable for the Company’s interim and annual consolidated financial statements for periods ending on or after March 27, 2009 with retroactive application. The adoption of this policy did not have an impact on the Company’s consolidated financial statements.

Future Accounting ChangesIn January 2009, the CICA issued Handbook Section 1582, “Business Combinations” which requires all assets and liabilities of an acquired business be recorded at fair value at acquisition. Obligations for contingent consideration and contingencies will also be recorded at fair value at the acquisition date. The standard also states that acquisition related costs are expensed as incurred and that restructuring charges will be expensed in the periods after the acquisition date. The standard applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period on or after January 1, 2011.

In January 2009, the CICA issued Handbook Section 1601, “Consolidations” and Section 1602, “Non-controlling Interests”. Section 1601 establishes standards for the preparation of consolidated financial statements. Section 1602 establishes standards for accounting for a non-controlling interest in consolidated financial statements subsequent to a business combination. These standards apply to interim and annual consolidated financial statements relating to fiscal years beginning on or after January 1, 2011.

International Financial Reporting Standards (“IFRS”)In 2006, the Canadian Accounting Standards Board (“AcSB”) published a new strategic plan that will significantly affect financial reporting requirements for Canadian companies. The AcSB strategic plan outlines the convergence of Canadian GAAP with IFRS over an expected five year transitional period. In February 2008, the AcSB announced that 2011 is the changeover date for publicly-listed companies to use IFRS, replacing Canadian GAAP. The changeover date is for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. The Company’s transition date of January 1, 2011 will require the restatement for comparative purposes of amounts reported by the Company for the fiscal year commencing January 1, 2010.

The Company has commenced the process to transition from current Canadian GAAP to IFRS. The transition process consists of three primary phases: scoping and diagnostic phase; impact analysis, evaluation and design phase; and implementation and review phase.

• Scopinganddiagnosticphase–Apreliminarydiagnosticreviewwascompletedatahighlevelwhichdeterminedthefinancial reporting differences under IFRS and the key areas that may be impacted. The areas with the highest potential impact were identified to include the basis of consolidation, impairment of assets, financial instruments and initial adoption of IFRS under the provisions of IFRS 1.

• Analysis,quantificationandevaluationphase–Inthisphase,eachareaidentifiedfromthescopinganddiagnosticphasewill be addressed in order of descending priority. This phase involves specification of changes required to existing accounting policies, information systems and business processes, together with an analysis of policy alternatives allowed under IFRS and development of draft IFRS financial statement content. The Company anticipates that there will be changes in accounting policies and that these changes may materially impact the financial statements. The full impact on future financial reporting is not reasonably determinable or estimable at this time.

• Implementationandreviewphase–Thisphaseincludesexecutionofanychangestoinformationsystemsandbusinessprocesses and completing formal authorization processes to approve recommended accounting policy changes. It will also include the collection of financial information necessary to compile IFRS-compliant financial statements and audit committee approval of IFRS financial statements.

Having completed the scoping and diagnostic phase and commenced the analysis phase, the Company expects that the areas that will be significantly affected by the transition to IFRS will be as follows:



First Time adoption (IFRS 1)IFRS 1 provides guidance to entities on the general approach to be taken when first adopting IFRS. The underlying principle of IFRS 1 is retrospective application of IFRS standards in force at the date an entity first reports using IFRS. IFRS 1 acknowledges that full retrospective application may not be practical or appropriate in all situations and prescribes: • OptionalexemptionsfromspecificaspectsofcertainIFRSstandardsinthepreparationoftheCompany’sopeningbalance sheet; and • MandatoryexceptionstoretrospectiveapplicationofcertainIFRSstandards.

Additionally, to ensure financial statements contain high-quality information that is transparent to users, IFRS 1 contains disclosure requirements to highlight changes made to financial statement items due to the transition to IFRS.

Impairment (IAS36)IFRS requires the use of a one-step impairment test (impairment testing is performed using discounted cash flows) rather than the two-step under Canadian GAAP (using undiscounted cash flow as a trigger to identify potential impairment loss). IFRS requires reversal of impairment losses (excluding goodwill) where previous adverse circumstances have changed; this is prohibited under Canadian GAAP.

Impairment testing should be performed at the asset level for long-lived assets and intangible assets. Where the recoverable amount cannot be estimated for individual assets, it should be estimated as part of a Cash Generating Unit (“CGU”).

Share-based payments (IFRS 2)Per IFRS, the forfeiture rate, with respect to share options, needs to be estimated by the Company at the grant date instead of recognizing the entire compensation expense and only record actual forfeitures as they occur. For graded-vesting features, IFRS requires each instalment to be treated as a separate share option grant, because each instalment has a different vesting period and hence the fair value of each instalment will differ.

Mineral property interest, exploration and evaluation costs (IFRS 6, IAS16, IAS38)Under IFRS, the Company would be required to develop an accounting policy to specifically and consistently identify which expenditures on exploration and evaluation activities will be recorded as assets. Unlike IFRS, Canadian GAAP indicates that exploration costs may initially be capitalized if the Company considers that such costs have the characteristics of property, plant and equipment. Exploration and evaluation assets shall be classified as either tangible or intangible according to the nature of the assets acquired.

Information systemsNo significant challenges are expected at this point to operate the accounting system under IFRS. The Company has yet to establish if historical data will have to be regenerated to comply with some of the choices to be made under IFRS 1. Once the extent of the adjustments needed to convert to IFRS will be established, processes will be put in place to generate the dual accounting needed for 2010. Internal controlsManagement is responsible for ensuring that processes are in place to provide them with sufficient knowledge to support their certification of the financial statements and MD&A, more specifically assessing that the SEDAR filings are presenting fairly the results of the Company. Management will make sure that once the convergence process is completed, it can still certify its filings.

Impact on the businessThe business processes of the Company are not expected to be effected significantly to operate under IFRS. The Company has no foreign currency transactions, no hedging activities, no debt or capital covenants. The Company doesn’t expect that IFRS will have an impact on the requirements or business processes when it enters into flow-through financing. The Company has no compensation arrangements that will be affected by the IFRS implementation. The Company’s Stock Option Plan is not affected by ratios or financial targets.

The International Accounting Standard Board currently has projects underway that are expected to result in new pronouncements and as a result, IFRS as at the transition date is expected to differ from its current form. The final impact of IFRS on the financial statements will only be determined once all applicable standards at the conversion date are known.



16

SUMMARY OF SHARES ISSUED

As of March 17, 2010, the Company’s share information is as follows: Common shares issued 100,629,409 Common share purchase options 2,280,250

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Disclosure Controls and ProceduresIn accordance with the requirements of National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings.” the Company’s management, including the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), have evaluated the effectiveness of the Company’s disclosure controls and procedures. Based upon the results of that evaluation, the Company’s CEO and CFO have concluded that as at December 31, 2009, the Company’s disclosure controls and procedures to provide reasonable assurance that the information required to be disclosed by the Company in reports it files is recorded, processed, summarized and reported within the appropriate time periods and forms were effective.

Internal Control over Financial ReportingInternal control over financial reporting (“ICFR”) is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with applicable Canadian GAAP. Internal control over financial reporting should include those policies and procedures that establish the following: • maintenanceofrecordsinreasonabledetail,thataccuratelyandfairlyreflectthetransactionsanddispositionsofourassets; • reasonableassurancethattransactionsarerecordedasnecessarytopermitpreparationoffinancialstatementsin accordance with applicable Canadian GAAP; • receiptsandexpendituresareonlybeingmadeinaccordancewithauthorizationsofmanagementandtheBoardofDirectors; • reasonableassuranceregardingpreventionortimelydetectionofunauthorizedacquisition,useordispositionofourassets that could have a material effect on the financial instruments.

The Company’s management, with the participation of the CEO and CFO, assessed the effectiveness of the Company’s internal controls over financial reporting and concluded that there has been no change in the Company’s internal control over financial reporting during the year ended December 31, 2009, that has materially affected or is reasonably likely to materially affect the Company’s internal control over financial reporting. In making its assessment, management and the CEO and the CFO have determined that as at December 31, 2009, the Company’s internal control over financial reporting was effective except for the disclosable weakness in the lack of segregation of duties.

Segregation of DutiesSegregation of duties is a basic, key internal control and one of the most difficult to achieve. It is used to ensure that errors or irregularities are prevented or detected on a timely basis by employees in the normal course of business.

Due to the small size of the company and its relatively few accounting staff, segregation of duties within the accounting group was not achieved. The result is that the Company is highly reliant on the performance of mitigating procedures during its financial close processes in order to ensure the financial statements are presented fairly in all material respects.

Management will review the current assignment of responsibilities and where possible improve on segregation. Where it is not cost effective to obtain additional accounting resources, management will review existing mitigating controls and, if thought appropriate, implement changes to ICFR whereby more effective mitigating controls will be adopted.

Limitations of Controls and ProceduresThe Company’s management, including the CEO and CFO, believe that any disclosure controls and procedures or internal control over financial reporting, no matter how well conceived and operated can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that any design will not succeed in achieving its stated goals under all potential future conditions. Accordingly, because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and not be detected.



OUTLOOK

For 2010 we forecast approximately 70,000 ounces of production with about 38,000 ounces from Eagle River and about 32,000 ounces from Kiena. Although we expect lower grades from Eagle River, mining in the western portion of the mine has, to date, exceeded grade forecasts. As development and mining progress here we are hopeful that we can again upgrade our forecasts periodically during the year.

We will focus on operations and continue the stepwise re-evaluation of our assets for organic growth potential. Chief amongst these are the Mishi deposit, the Dubuisson discovery and the Wesdome property. Acquisition opportunities which fit our regional development strategy will continue to be examined with discipline.

Conditions have never been more favourable for Canadian gold mines, nor have fundamentals ever been so supportive of the gold market. We feel that our leverage to gold prices has been clearly demonstrated over the last two years. Our unhedged production, growing bullion inventory and exploration potential serve to maximize leverage to gold prices.



18

Management’s responsibility for financial Statements

The accompanying consolidated financial statements and all of the data included in this annual report have been prepared by and are the responsibility of the management of the Company. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Canada and reflect management’s best estimate and judgement based on currently available information.

Management is also responsible for a system of internal control which is designed to provide reasonable assurance that assets are safeguarded, liabilities are recognized and that the accounting systems provide timely and accurate financial reports.

The Board of Directors is responsible for ensuring that management fulfils its responsibilities in respect of financial reporting and internal control. The Audit Committee of the Board of Directors meets periodically with management and the Company’s independent auditors to discuss auditing matters and financial reporting issues. In addition, the Audit Committee reviews the annual consolidated financial statements before they are presented to the Board of Directors for approval.

The Company’s independent auditors, Grant Thornton LLP, are appointed by the shareholders to conduct an audit in accordance with generally accepted auditing standards in Canada, and their report follows.

Toronto, Canada Donald D. OrrMarch 17, 2010 Secretary-Treasurer and CFO


Auditors’ report

To the Shareholders of Wesdome Gold Mines Ltd.

We have audited the consolidated balance sheets of Wesdome Gold Mines Ltd. as at December 31, 2009 and 2008 and the consolidated statements of income and comprehensive income, shareholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the company as at December 31, 2009 and 2008 and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles.

Toronto, Canada Chartered AccountantsMarch 17, 2010 Licensed Public Accountants


20

December 31 2009 2008 (in thousands)

AssetsCurrent Cash and cash equivalents $ 23,702 $ 8,029 Receivables (Note 3) 4,022 4,205 Inventory (Note 4) 14,624 10,165 Marketable securities (Note 9) 211 44 Future income taxes (Note 15) 1,199 - 43,758 22,443

Restricted funds (Note 5) 2,588 2,303Future income taxes (Note 15) 2,245 -Capital assets (Note 6) 9 10Mining properties (Note 7) 64,637 61,294Exploration properties (Note 8) 30,018 28,956Property held for sale (Note 9) - 378 $ 143,255 $ 115,384

LiabilitiesCurrent Payables and accruals $ 7,322 $ 7,865 Current portion of obligations under capital leases 1,240 1,478 8,562 9,343

Income taxes payable 82 173Obligations under capital leases (Note 10) 1,108 2,396Convertible 7% debentures (Note 11) 9,483 9,413Asset retirement obligation (Note 12) 1,324 1,042Future income taxes (Note 15) - 1,292 20,559 23,659

Minority interest in Moss Lake Gold Mines Ltd. 857 903

Shareholders’ EquityCapital stock (Note 13) 114,567 113,872Contributed surplus 3,770 3,648Accumulated other comprehensive loss (222) (290)Equity component of convertible debentures (Note 11) 1,970 2,062Retained earnings (Deficit) 1,754 (28,470) 121,839 90,822

$ 143,255 $ 115,384

On behalf of the Board,

Donovan Pollitt Marc Blais Director Director

Consolidated Balance Sheets

See accompanying notes to the consolidated financial statementsWeSdoMe gold MineS ltd.

2009 ANNuAL rePort

Years Ended December 31 2009 2008 (in thousands, except per share amounts)

Revenue Gold and silver bullion $ 103,270 $ 80,306 Interest and other 266 655 103,536 80,961

Costs and expenses Operating costs 58,019 57,372 Amortization of mining properties 12,869 10,767 Production royalties 1,073 774 Corporate and general 2,064 1,991 Stock based compensation expense 495 398 Interest on long term debt 1,596 1,542 Other interest 16 19 Amortization of capital assets 1 3 Accretion of asset retirement obligation 71 66 76,204 72,932

Net income before the following 27,332 8,029Dilution gain (loss) on Moss Lake Gold Mines Ltd. 9 (140)Net income before income tax and minority interest 27,341 7,889Income tax (recovery) (Note 15) Current (91) 173 Future (4,676) (1,672) (4,767) (1,499)

Net income before minority interest 32,108 9,388

Minority interest 57 (26)

Net income 32,165 9,362

Other comprehensive income (loss): Change in fair value of available-for-sale marketable securities 68 (158)

Comprehensive income $ 32,233 $ 9,204

Net income per common share (Note 16) Basic and diluted $ 0.32 $ 0.09

Consolidated Statements of Income and Comprehensive Income

See accompanying notes to the consolidated financial statementsWeSdoMe gold MineS ltd. 2009 ANNuAL rePort 21

22

Consolidated Statements of Shareholders’ equity

See accompanying notes to the consolidated financial statements

Accumulated Equity Other Component of Total Capital Contributed Comprehensive Convertible Shareholders’(in thousands) Stock Surplus Loss Debentures Deficit Equity

Balance, December 31, 2007 $ 115,277 $ 2,789 $ (132) $ 2,080 $ (37,851) $ 82,163

Net loss for year ended December 31, 2008 - - - - 9,362 9,362

Tax effect of flow-through share renunciation (1,204) - - - - (1,204)

Flow-through shares issued, net of costs 1,668 - - - - 1,668

Exercise of options 27 - - - - 27

Value attributed to options exercised 10 (10) - - - -

Shares purchased under NCIB (1,906) 471 - - - (1,435)

Gain on equity component of early repurchase of convertible debentures - - - (18) 19 1

Stock based compensation - 398 - - - 398

Revaluation to fair value of marketable securities - - (158) - - (158)

Balance, December 31, 2008 113,872 3,648 (290) 2,062 (28,470) 90,822

Net income for year ended December 31, 2009 - - - - 32,165 32,165

Tax effect of flow-through share renunciation (526) - - - - (526)

Share issuance costs flow-through shares issued (105) - - - - (105)

Exercise of options 984 - - - - 984

Value attributed to options exercised 376 (376) - - - -

Shares purchased under NCIB (34) 3 - - (7) (38)

Gain on equity component of early repurchase of convertible debentures - - - (92) 61 (31)

Stock based compensation - 495 - - - 495

Revaluation to fair value of marketable securities - - 68 - - 68

Dividends paid - - - - (1,995) (1,995)

Balance, December 31, 2009 $ 114,567 $ 3,770 $ (222) $ 1,970 $ 1,754 $ 121,839


See accompanying notes to the consolidated financial statements

Consolidated Statements of Cash flows

Years Ended December 31 2009 2008 (in thousands)

Operating activities Net income $ 32,165 $ 9,362 Amortization of mining properties 12,869 10,767 Accretion of discount on convertible debentures 516 463 Gain on sale of Moss Lake shares - (14) Dilution (gain) loss on Moss Lake Gold Mines Ltd. (9) 140 Minority interest (57) 26 Stock based compensation expense 495 398 Amortization of capital assets 1 3 Future income taxes (4,676) (1,672) Gain on sale of equipment (1) (41) Gain on property held for sale (122) - Accretion of asset retirement obligation 71 66 41,252 19,498 Net changes in non-cash working capital (Note 19) (4,745) (4,833) 36,507 14,665

Financing activities Exercise of options 984 27 Funds paid to repurchase common shares under NCIB (38) (1,435) Funds paid to repurchase debentures (477) (87) Share issuance costs (105) 1,668 Dividends paid (1,995) - Shares issued by a subsidiary of the company to third parties 17 (4) Repayment of obligations under capital leases (1,890) (1,740) (3,504) (1,571) Net changes in non-cash working capital (Note 19) - 276 (3,504) (1,295)

Investing activities Additions to mining and exploration properties (17,857) (13,867) Proceeds on sale of Moss Lake shares to minority interests - 26 Proceeds on sale of equipment 577 261 Proceeds on property held for sale (Note 9) 400 567 Funds held against standby letters of credit (285) 238 (17,165) (12,775) Net changes in non-cash working capital (Note 19) (165) 25 (17,330) (12,750)Increase in cash and cash equivalents 15,673 620Cash and cash equivalents, beginning of year 8,029 7,409 Cash and cash equivalents, end of year (Note 19) $ 23,702 $ 8,029

Supplemental disclosure (Note 19)


24

December 31, 2009 and 2008

1. DESCRIPTION OF BUSINESS

Wesdome Gold Mines Ltd. (“Wesdome Ltd.” or “the Company”) is a gold producer engaged in gold mining and related activities including exploration, extraction, processing and reclamation.

The Company is a publicly traded company, continued under Part 1A of the Companies Act (Quebec) and its common shares are listed on the Toronto Stock Exchange (TSX: WDO).

The Company’s principal assets include the Eagle River mine, the Mishi mine and the Eagle River mill located near Wawa, Ontario and the Kiena mining and milling complex and exploration properties located in Val D’Or, Quebec.

2. SIGNIFICANT ACCOUNTING POLICIES

These consolidated financial statements have been prepared by management in accordance with accounting principles generally accepted in Canada (“GAAP”) using the following significant accounting policies.

Basis of PresentationThe consolidated financial statements include the accounts of the Company and its 56% (2008: 56%) owned subsidiary, Moss Lake Gold Mines Ltd. (“MLGM”).

On December 31, 2009, the Company underwent a reorganization involving its wholly-owned subsidiaries, Wesdome Resources Limited (‘WRL”), Wesdome Gold Mines Inc. (“WGMI”) and Western Québec Mines Inc. (“Western Québec”). WGMI was amalgamated by way of short-form vertical amalgamation with WRL to form “New WGMI”. “New WGMI” was then wound up into Wesdome Ltd. by way of dissolution. Western Québec was subsequently wound up into Wesdome Ltd. by way of dissolution. All of these transactions were under the laws of Québec (The Québec Act).

The benefits of the reorganization will include a reduction of the additional costs of record-keeping, administration and tax compliance as well as the possibility of utilizing the tax attributes of the inactive companies in one of the operating entities that would otherwise be inaccessible.

Estimates, Risks and UncertaintiesThe preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of expenses and other income during the year. Significant estimates and assumptions include those related to the recoverability of mining and exploration properties, estimated useful lives of capital assets and mining properties, asset retirement obligations, determination of future income tax assets and liabilities, the equity component of the convertible debentures and stock based compensation expense. While management believes that these estimates and assumptions are reasonable, actual results could vary significantly. The carrying value of the Company’s principal assets could be subject to material adjustment in the event that the Company is not successful in generating operating cash flow and financing for its development and exploration activities.

Cash and Cash EquivalentsCash and cash equivalents include cash on hand, balances with banks and highly liquid investments with maturities of less than three months.

InventoryInventories of gold bullion are recorded at the lower of production costs on a first-in, first-out basis and net realizable value. Production costs include costs related to mining, crushing, and mill processing, as well as applicable overhead, depreciation and amortization.

Supplies are valued at the lower of average cost and replacement cost.

Capital AssetsCapital assets are recorded at cost less accumulated amortization. Amortization of capital assets used for exploration is capitalized to exploration properties.

Amortization is provided over the expected useful lives using the following methods and annual rates: Office equipment – 20% straight line

Mining PropertiesMining properties are carried at cost less accumulated amortization.

All costs associated with pre-production and development activities, including the cost of construction or acquisition of mine buildings, power lines and equipment, are capitalized as incurred. Capitalized costs also include costs incurred during the exploration stage transferred from exploration properties.

Notes to the Consolidated Financial Statements


Amortization of mine buildings and mills, equipment and pre-production and development costs commences when a property is put into commercial production, and is calculated on the unit of production method over the expected economic life of the mine.

The amounts capitalized represent costs to be charged to operations in the future and do not necessarily reflect the present or future values of the particular properties.

Development costs incurred to expand the capacity of an operating mine, develop new ore bodies or develop mine areas substantially in advance of current production are capitalized and charged to operations calculated on the unit of production method over the expected economic life of the mine.

Exploration PropertiesEach property is accounted for as a separate project. All direct costs related to the acquisition and exploration of a property are capitalized as incurred. If a property proceeds to development, these costs become part of the pre-production and development costs of the mine. If a property is abandoned or continued exploration is not deemed appropriate in the foreseeable future, the related costs and expenditures are written off.

Capitalized expenditures are charged to operations as amortization or loss on impairment or gain/loss on disposal when operations commence or impairment is demonstrated or when the properties are disposed of. These capitalized costs do not necessarily reflect the present or future values of particular properties.

Impairment of Long-Lived AssetsThe Company monitors events and changes in circumstances which may require an assessment of the recoverability of its long-lived assets. If required, the Company would assess recoverability using estimated undiscounted future operating cash flows. If the carrying amount of an asset is not recoverable, an impairment loss is recognized in operations, measured by comparing the carrying amount of the asset to its fair value.

Asset Retirement ObligationThe Company provides for the fair value of liabilities and capitalized costs for asset retirement obligations in the period in which they are incurred. Over time, the liability is accreted to its present value and the capitalized cost is amortized over the useful life of the related asset. Asset retirement obligations are obligations of the Company that arise as a result of an existing law, regulation or contract related to asset retirements. Future costs to retire an asset include dismantling, remediation and ongoing treatment and monitoring of the site. Subsequent to the initial recognition of the asset retirement obligation and associated asset retirement cost, any changes resulting from a revision to either timing or amount of estimated cash flows are prospectively reflected in the year those estimates change.

Financial Instruments – Recognition and MeasurementThe Company designates its financial instruments into one of the following five categories: held-for-trading, available-for-sale, held-to-maturity, loans and receivables, and other financial liabilities. All financial instruments are to be initially measured at fair value. Financial instruments classified as held-for-trading or available-for-sale are subsequently measured at fair value with any change in fair value recorded in net earnings and other comprehensive income, respectively. All other financial instruments are subsequently measured at amortized cost using the effective interest method.

As at December 31, 2009 cash and cash equivalents and restricted funds are classified as held-for-trading. Receivables are classified as loans and receivables. Marketable securities are classified as available-for-sale. Payables and accruals and convertible debentures are classified as financial liabilities.

All derivative financial instruments, including derivative features embedded in financial instruments or other contracts but which are not considered closely related to the host financial instrument or contract, are generally classified as held-for-trading and, therefore, must be measured at fair value with changes in fair value recorded in net earnings. However, if a derivative financial instrument is designated as a hedging item in a qualifying cash flow hedging relationship, the effective portion of changes in fair value is recorded in other comprehensive income. Any change in fair value relating to the ineffective portion is recorded immediately in net earnings.

Embedded derivatives are required to be separated from the host contract and accounted for as a derivative financial instrument if the embedded derivative and host contract are not closely related, and the combined contract is not held for trading or designated at fair value.

On the issuance of the related debt, financing costs are reclassified to debt to reflect the adopted policy of capitalizing debt transaction costs within the related debt. The costs capitalized within debt are amortized using the effective interest method.

Convertible Debentures PayableConvertible debentures payable were segregated into their debt and equity components at the date of issue. The financial liability component, representing the value allocated to the liability at inception, was included in convertible debentures payable. The remaining component, representing the value ascribed to the holders’ option to convert the principal balance into common shares, was classified in shareholders’ equity as “Equity component of convertible debentures”. The carrying value of the liability component is being accreted to the principal amount as additional interest expense over the term of the debentures.

Stock-Based CompensationThe Company recognizes compensation expense for grants of stock options to qualifying directors, officers and employees based on the estimated fair value at the grant date.

Wesdome gold Mines ltd. Notes to the Consolidated Financial Statements December31,2009and2008


26

Flow-Through SharesThe Company has financed a portion of its exploration activities through the issuance of flow-through shares. Under the terms of flow-through share agreements, the tax attributes of the related expenditures are renounced to subscribers. To recognize the tax benefits foregone by the Company, the carrying value of the shares issued is reduced by the tax effect of the tax benefits renounced to subscribers. The liability relating to the foregone tax benefit is recognized at the time of the renunciation provided there is reasonable assurance that the expenditures will be incurred. Revenue RecognitionRevenue comprises the fair value of the consideration received or receivable from the sale of bullion and is recognized when an arrangement exists, risks pass to the buyer, the price is fixed and collection is reasonably assured.

Income TaxesIncome taxes are calculated using the asset and liability method of tax accounting. Under this method, current income taxes are recognized for the estimated income taxes payable for the current period. Future income tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and on unclaimed losses carried forward and are measured using the substantively enacted tax rates that will be in effect when the differences are expected to reverse or losses are expected to be utilized. A valuation allowance is recognized to the extent that the recoverability of future income tax assets is not considered more likely than not. The valuation of future income tax assets is adjusted, if necessary, by the use of a valuation allowance to reflect the estimated realizable amount.

Income per Common ShareBasic income per share is computed by dividing the income for the period by the weighted average number of common shares outstanding during the period, including contingently issuable shares which are included when the conditions necessary for issuance have been met. Diluted earnings per share is calculated in a similar manner, except that the weighted average number of common shares outstanding is increased to include potentially issuable common shares from the assumed exercise of options and warrants, if dilutive. The number of additional shares included in the calculation is based on the treasury stock method for options and warrants.

Comprehensive IncomeComprehensive income is the change in the Company’s net assets arising from transactions, events and circumstances not related to the Company’s shareholders and include items that would not normally be included in net earnings or losses such as unrealized gains or losses on available-for-sale investments.

Conversion to International Financial Reporting StandardsOn February 13, 2008, the Accounting Standards Board confirmed that publicly accountable entities will be required to adopt International Financial Reporting Standards (“IFRS”) for interim and annual financial statements for fiscal years beginning on or after January 1, 2011, with restatement of comparative information presented. The conversion to IFRS will impact the Company’s accounting policies, information technology and data systems, internal controls over financial reporting and disclosure controls and procedures.

Changes in Accounting PoliciesOn January 1, 2009, the Company adopted the Canadian Institute of Chartered Accountants (“CICA”) Handbook Section 3064, “Goodwill and Intangible Assets”. The new standard replaces the previous goodwill and intangible asset standard and revises the requirement for recognition, measurement, presentation and disclosure of intangible assets. The adoption of this standard did not have an impact on the Company’s consolidated financial statements.

In March 2009, the CICA issued EIC Abstract 174, “Mining, Exploration Costs” (“EIC-174”) which supersedes EIC Abstract 126, “Accounting by Mining Enterprises for Exploration Costs” (“EIC-126”), to provide additional guidance for mining exploration enterprises on the accounting for capitalization of exploration costs and when an impairment test of these costs is required. EIC-174 is applicable for the Company’s interim and annual consolidated financial statements for periods ending on or after March 27, 2009 with retroactive application. The adoption of this policy did not have an impact on the Company’s consolidated financial statements.

In July, 2009, the CICA approved amendments to section 3862, “Financial Instruments – Disclosures”. The amendments require additional fair value disclosure for financial instruments and liquidity risk disclosures. These amendments require a three-level hierarchy that reflects the significance of the inputs used in making fair value assessments, as follows: • Level1fairvaluemeasurementsarethosederivedfromquotedprices(unadjusted)inactivemarketsforidenticalassetsorliabilities; • Level2fairvaluemeasurementsarethosederivedfrominputsotherthanquotedpricesincludedwithinLevel1thatareobservableforthe asset or liability either directly (i.e. as prices) or indirectly (i.e. derived from prices); • Level3fairvaluemeasurementsarethosederivedfromvaluationtechniquesthatincludeinputsfortheassetorliabilitythatarenotbased on observable market data (unobservable inputs).

The Company adopted the requirements of amendments to Section 3862 in its December 31, 2009 consolidated financial statements (Note 18).




Future Accounting ChangesIn January 2009, the CICA issued Handbook Section 1582, “Business Combinations” which requires all assets and liabilities of an acquired business be recorded at fair value at acquisition. Obligations for contingent consideration and contingencies will also be recorded at fair value at the acquisition date. The standard also states that acquisition related costs are expensed as incurred and that restructuring charges will be expensed in the periods after the acquisition date. The standard applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period on or after January 1, 2011.

In January 2009, the CICA issued Handbook Section 1601, “Consolidations” and Section 1602, “Non-controlling Interests”. Section 1601 establishes standards for the preparation of consolidated financial statements. Section 1602 establishes standards for accounting for a non-controlling interest in consolidated financial statements subsequent to a business combination. These standards apply to interim and annual consolidated financial statements relating to fiscal years beginning on or after January 1, 2011.

3. RECEIVABLES

(in thousands) 2009 2008 Mining duties refunds and tax credits $ 1,012 $ 1,103Proceeds from bullion sales - 964Goods and services tax 1,340 648Prepaids 433 425CSST 831 700Deposits 263 295Other 143 70 $ 4,022 $ 4,205

4. INVENTORY

(in thousands) 2009 2008 Gold bullion $ 12,149 $ 7,895Supplies 2,475 2,270 $ 14,624 $ 10,165

5. RESTRICTED FUNDS

(in thousands) 2009 2008 Relating to mine closure plans (Note 12) $ 1,537 $ 1,373Relating to hydro deposit 370 370Relating to capital leases 681 560 $ 2,588 $ 2,303

Funds are being held in Guaranteed Investment Certificates at interest rates ranging from 0.33% to 1.40% (2008: 1.90% to 3.45%) maturing in November 2010 and promissory notes at interest rates of 2.75% and 6.50% maturing in 2011 and 2012, respectively.

6. CAPITAL ASSETS

(in thousands) 2009 2008 Office EquipmentCost $ 16 $ 16Less: Accumulated amortization 7 6 Net book value $ 9 $ 10


28

7. MINING PROPERTIES

(in thousands) 2009 2008 Eagle RiverCost $ 40,663 $ 32,714Less: Accumulated amortization 21,363 16,265 19,300 16,449 Kiena Mine complexCost 65,059 57,263Less: Accumulated amortization 19,722 12,418 45,337 44,845 Mining propertiesCost 105,722 89,977Less: Accumulated amortization 41,085 28,683 $ 64,637 $ 61,294

The Eagle River PropertiesThe Eagle River mining properties consist of the Eagle River mine, the Mishi mine and the Eagle River mill.

The Eagle River mine is subject to a 2% net smelter return royalty payable to the original vendors of the property.

The Mishi mine is subject to royalty payments of $1 per tonne for open pit mining and $2 per tonne for underground mining in respect of ore mined and milled from the underlying claims in excess of 700,000 tonnes.

Kiena Mine Complex – Wesdome GroupThe Kiena mine complex consists of the Kiena mine concession, Kiena mill, other mining assets and 165 mining claims in the Township of Dubuisson, Quebec.

8. EXPLORATION PROPERTIES

(in thousands) Wesdome Group Moss Lake Magnacon Other Total Balance, December 31, 2007 $ 24,903 $ 1,760 $ 1,000 $ 15 $ 27,678Exploration expenditures 171 1,116 - - 1,287Mining duties refund and tax credits (9) - - - (9)Balance, December 31, 2008 25,065 2,876 1,000 15 28,956Acquisitions (586) - 750 25 189Exploration expenditures 313 54 30 494 891Mining duties refund and tax credits (18) - - - (18)Balance, December 31, 2009 $ 24,774 $ 2,930 $ 1,780 $ 534 $ 30,018

The Wesdome Group PropertiesThe Wesdome Group Properties include the Wesdome, Shawkey, Siscoe and Siscoe-Extension, Mine École, Lamothe, Lamothe-Extension, Yankee Clipper and Callahan properties. These properties, in conjunction with the mining property Kiena mine complex, are contiguous and are integrated into the Company’s long term strategy of progressive exploration and development from a central infrastructure.

Wesdome property – The Company has a 100% interest in this property which consists of 51 claims totalling 2,003 acres and is located under de Montigny Lake in Vassan and Dubuisson Townships, Quebec and is contiguous to the Kiena mine complex. The property is subject to a 1% net smelter royalty.

Shawkey properties – The Company has a 100% interest in the Shawkey and the Shawkey South properties, which are contiguous to the Kiena mine complex and consist of four mining concessions and three mining claims, respectively, in Dubuisson Township, Quebec.

Siscoe and Siscoe-Extension properties – The Siscoe property is located in Dubuisson and Vassan Townships, Quebec and consists of two mining concessions. The Siscoe-Extension property consists of 13 contiguous claims. These properties are contiguous to the Kiena mine complex.

The Company owns a 100% interest in the Siscoe property and a 75% interest in the Siscoe-Extension property. The original vendor of these properties retains a 3% net smelter return royalty of which 1% can be purchased for $500,000.

Mine École property – The Mine École property is located in Dubuisson Township and consists of 23 claims located southeast and contiguous to the Shawkey property.

Other properties – Other properties consist of interests in the Lamothe, Lamothe-Extension, Yankee Clipper and Callahan properties which are contiguous to the Wesdome property.




The Lamothe and Callahan properties are subject to a 1% net smelter royalty and 8 of the 10 claims comprising the Yankee Clipper property are subject to a 2% net profits royalty.

Moss Lake PropertiesThe Moss Lake property is owned by MLGM which is obligated to pay underlying advance royalties of $5,469 per quarter to the vendors of the Moss Lake property until commercial production is achieved. Upon commencement of commercial production, the property is subject to a 8.75% net profits royalty, as defined, to these underlying vendors in lieu of the underlying advance royalty.

MLGM owns a 100% interest in the Fountain Lake property which consists of 149 mining claims contiguous to the Moss Lake property to the east, west and south. This property is subject to a 2.5% net smelter return royalty payable to certain original vendors of the property. This royalty is subject to a buyback clause whereby the royalty may be reduced to 1.5% net smelter return for consideration of $1.0 million.

Magnacon PropertiesIn 2000, the Company acquired a 75% joint venture interest in the Magnacon properties and entered into a joint venture agreement with the two companies holding the remaining 25% interest. Subsequently, the joint venture partners’ interest was reduced to approximately 22.72%. In June 2009, the Company purchased the joint venture partners’ interest for $750,000 and an additional 1% net smelter royalty. The Company owns 100% of the Magnacon properties which are subject to net smelter royalties of 1.5% on the Magnacon property and 2% on the adjacent property.

Other PropertiesIn June 2009, the Company entered into an exploration and option agreement to earn up to a 60% interest in the Pukaskwa claims. By spending or causing to be spent $1.5 million before June 30, 2012, the Company shall have earned a 30% undivided working interest in the claims. By spending or causing to be spent another $1.5 million before June 30, 2014, the Company shall have earned a further 30% undivided working interest in the claims. The Company paid $25,000 to the owner upon closing. The Pukaskwa property is located 15 kilometres west of the Eagle River Mill.

9. PROPERTY HELD FOR SALE

On November 27, 2006 the Company entered into an agreement with Britannica Resources Corporation (“Britannica”) to sell 100% of the McKenzie Break property for $2.0 million in cash and common shares. The present value of the property was recorded as Property Held For Sale. As at December 31, 2008 Britannica had paid the Company $1,166,666 and 1,092,199 common shares which had a market value when received of $333,334.

On February 23, 2009 Britannica granted Northern Star Mining Corp. (“Northern Star”) an option to acquire an undivided 60% interest in the McKenzie Break property in consideration for Northern Star funding Britannica’s final option payment of $400,000 in cash and $100,000 in common shares. On March 2, 2009 Northern Star made the final payment of $400,000 and 178,572 common shares valued at $100,000.

As at December 31, 2009 the common shares received for the McKenzie Break property have been marked to market with a value for the Britannica common shares at $120,000 and the Northern Star common shares at $91,000. This adjustment created an unrealized gain of $68,000 which has been recorded as other comprehensive income. A gain of $122,000 recognized upon completion of the obligations and transfer of title was the difference between the proceeds and the present value of the property held for sale.

The Company retains a royalty of 1,000 ounces of gold payable annually from the project, after the project has produced an initial production of 250,000 ounces of gold. The gold value may be payable in common shares at the time of the payment.

10. OBLIGATIONS UNDER CAPITAL LEASES

The Company leases, with options to purchase, certain mining equipment. Future minimum payments under capital leases, together with the balance of the obligations under capital leases are as follows:

(in thousands) 2009 2008 2009 $ - $ 1,7172010 1,400 1,4482011 789 7912012 364 3602013 25 25 Total minimum lease payments 2,578 4,341Less: Interest portion at the weighted average of 7.59% in 2009 (2008: 7.35%) 230 467 Total obligations under capital leases, secured by equipment 2,348 3,874Less: Current portion 1,240 1,478 Long term portion $ 1,108 $ 2,396

The gross amount of equipment under capital leases at December 31, 2009, is $6,759,000 (2008: $7,786,000) with related accumulated amortization of $1,411,000 (2008: $1,391,000). These assets are included in mining properties.


30

11. CONVERTIBLE 7% DEBENTURES

The following table summarizes the changes in the liability and equity components of the convertible debentures during the years ended December 31, 2009 and 2008.

Liability component (in thousands) 2009 2008 Balance, beginning of year $ 9,413 $ 9,038Accretion 516 463Early redemption (446) (88)Balance, end of year $ 9,483 $ 9,413

Equity component (in thousands) 2009 2008 Balance, beginning of year $ 2,062 $ 2,080Early redemption (92) (18)Balance, end of year $ 1,970 $ 2,062

On May 30, 2007, the Company completed a private placement of senior unsubordinated convertible debentures in the amount of $11,539,000. The debentures are convertible into common shares of the Company: (i) during the first two years, at $2.25 per common share; and (ii) after the first two years until the maturity date of May 31, 2012, at $3.25 per common share.

The liability component of the debentures was calculated as the present value of the principal and interest, discounted at 12%, a rate approximating the interest rate that would have been applicable to non-convertible debt at the time the loan was issued. The liability component is recorded at amortized cost and accreted to the principal amount over the term of the convertible debentures by charges to interest expenses using an effective interest rate of 13.92%.

The purchase of $100,000 of debentures for $87,000, inclusive of $1,000 of interest payable, in 2008 reduced the liability component by $87,000 and the equity component by $18,000 creating a gain on the equity component of $19,000 recorded in deficit.

The purchase of $508,000 of debentures for $477,000, inclusive of $11,000 of interest payable, in 2009 reduced the liability component by $466,000 and the equity component by $92,000 creating a gain on the equity component of $61,000 recorded in deficit.

At December 31, 2009 the debentures available for conversion at $3.25 totalled $10,931,000.

12. ASSET RETIREMENT OBLIGATION

The Company is committed to a program of environmental protection at its operating mines, development projects and exploration sites. Management believes that it was in compliance with government regulations in 2009. The Eagle River ore and waste rocks are not acid generating which minimizes the environmental risks of mining. Although the ultimate amount of reclamation and closure costs is uncertain, the Company estimates its future closure costs for the Eagle River mine, Mishi mine and the mill are estimated to be about $0.8 million and the Kiena mine and mill are estimated to be about $0.7 million. The Company has provided $1.5 million standby letters of credit to be held against these future environmental obligations.

The following table presents the reconciliation of the beginning and ending aggregate carrying amount of the obligation associated with the retirement of mining properties:

As at December 31 2009 2008 (in thousands)Asset retirement obligation, beginning of year $ 1,042 $ 1,072Accretion expense 71 66Revision of estimate 211 (96)Asset retirement obligation, end of year $ 1,324 $ 1,042

The asset retirement obligation is based on current reserve estimates, forecasted production and estimated future cash flows underlying the obligation. As a result of changes to these estimates the Company has recorded a revision based on a credit adjusted risk free interest rate of 3% (2008: 5%). The obligation will be accreted to its present value of $1.5 million (2008: $1.4 million) over the next 3 to 5 years. Full value for this obligation has been set aside as restricted fund.




13. CAPITAL STOCK

Authorized:The authorized capital of the Company consists of an unlimited number of common shares without par value. Shares Amount Issued: (in thousands)Balance, December 31, 2007 99,824,159 $ 115,277Additional costs of 2007 flow-through shares - (6)Tax effect of 2007 flow-through share renunciations - (1,204)Flow-through shares, net of costs of $50,900 1,500,000 1,674Exercise of options 20,000 27Value attributed to options exercised - 10Shares purchased under NCIB (1,667,500) (1,906)Balance, December 31, 2008 99,676,659 113,872Tax effect of 2008 flow-through share renunciations - (526)Share issuance costs - (105)Exercise of options 784,500 984Value attributed to options exercised - 376Shares purchased under NCIB (30,000) (34)Balance, December 31, 2009 100,431,159 $ 114,567

On June 19, 2008, the Company received approval from the TSX for a Normal Course Issuer bid (“NCIB”). The bid allowed the Company to purchase on the open market up to 7,439,368 of its common shares for cancellation over a period of one year to end on June 22, 2009. During the period January 1, 2009 to June 22, 2009, the Company repurchased and cancelled a total of 15,000 common shares with a carrying value of $17,000 for a total cash consideration of $14,000.

On June 23, 2009, the Company received approval from the TSX for another NCIB. The bid allows the Company to purchase on the open market up to 7,151,772 of its common shares for cancellation over a period of one year to end on June 24, 2010. During the period June 23, 2009 to December 31, 2009, the Company repurchased and cancelled a total of 15,000 common shares with a carrying value of $17,000 for a total cash consideration of $24,000. When the cash cost was greater than the carrying value the difference was charged to retained earnings, when it was less it was charged to contributed surplus.

On December 22, 2008, the Company completed a private placement of 1,500,000 flow-through common shares at a price of $1.15 per share for gross proceeds of $1,725,000. In 2009, the Company recorded $526,000 of future income tax liability (2008: $1,204,000) related to flow-through shares and reduced share capital accordingly.

14. COMMON SHARE PURCHASE PLAN

The Company has a common share purchase plan under which the Board of Directors may grant options to purchase common shares to qualified directors, officers, employees and consultants providing on-going services to the Company or any subsidiary of the Company. The maximum aggregate number of common shares under option at any time pursuant to the Plan is set at 5,000,000 of which 2,464,500 are available to be issued.

The following table reflects the continuity for the years ended December 31, 2009 and 2008 of options granted under the plan.

Weighted Average Options Exercise Price 2009 2008 2009 2008 $ $Outstanding, beginning of year 3,459,250 3,504,250 1.73 1.99Granted 345,000 520,000 2.08 0.90Exercised (784,500) (20,000) 1.25 1.35Expired (484,250) (545,000) 2.64 2.56 Outstanding, end of year 2,535,500 3,459,250 1.76 1.73


32


Outstanding options Exercisable options Range of exercise Number Weighted average Weighted average Number Weighted average prices outstanding remaining life exercise price exercisable exercise price (years) $ $less than $1.00 169,000 3.93 0.76 115,000 0.75$1.00 - $1.50 465,250 2.44 1.32 326,550 1.35$1.51 - $2.00 881,250 2.76 1.61 609,650 1.64$2.01 - $2.50 1,020,000 2.08 2.24 890,000 2.23 2,535,500 2.50 1.76 1,941,200 1.81

The fair value of the options granted was estimated on the date of grant using the Black-Scholes option pricing model. For the years ended December 31, 2009 and 2008 the following factors were used: 2009 2008 Weighted average fair value, per option ($) 1.23 0.33Weighted average risk-free interest rate (%) 2.0 3.3Weighted average volatility (%) 77.0 56.0Expected life (years) 5.0 2.5Dividend yield (%) 1.4 0.0

The estimated fair value of the options is expensed over the vesting period. The fair value compensation and contributed surplus relating to stock options was $495,053 (2008: $398,468).

15. INCOME TAXES

The following table reconciles the expected income tax expense/recovery at the combined Federal and Ontario statutory income tax rate 33.0% (2008: 33.5%) to the amounts recognized in the consolidated statements of income.

(in thousands) 2009 2008 Net income reflected in consolidated statements of income $ 27,341 $ 7,889Expected income tax expense 9,023 2,643Non-deductible expense and other items 330 88Dilution loss 3 47Adjustment to reflect differing jurisdictional tax rates (69) 874Impact of change in substantively enacted rates (1,557) -Ontario resource profits (616) 139Ontario income tax harmonization (91) 173Stock based compensation expense 163 133Accretion of discount on convertible debenture 170 155Change in the valuation allowance (12,123) (5,751)Net income tax recovery $ (4,767) $ (1,499)

The following table reflects future income tax assets (liabilities) at December 31, 2009 and 2008.

(in thousands) 2009 2008 Future income tax assets (liabilities) Excess of unclaimed resource pools and undepreciated capital cost over carrying value of mining and exploration properties $ 664 $ 13,345 Unclaimed non capital losses 2,760 1,607 Ontario resource profit tax credit 616 - Eligible capital property 96 113 Deductible reclamation costs 351 281 Unclaimed financing costs 230 297 Less: valuation allowance (857) (12,980) Recognized future tax assets 3,860 2,663 Excess of carrying value of mining and exploration properties over unclaimed resource pools and undepreciated capital cost (416) (3,955)Net future tax asset (liability) $ 3,444 $ (1,292)



Future income taxes are classified on the balance sheet as:

(in thousands) 2009 2008 Current asset (liability) $ 1,199 $ -Non-current asset (liability) 2,245 (1,292)Net future tax asset (liability) $ 3,444 $ (1,292)

Non-capital losses available for carry forward to reduce taxable income in future years expire between 2014 and 2028.

No tax benefit has been recorded for the federal and provincial non capital losses of Moss Lake. These losses will expire as follows: 2010 - $45,000; 2013 - $57,000; 2014 - $81,000; 2025 - $5,000; 2026 - $98,000; 2027 - $129,000; 2028 - $146,000; and 2029 - $132,000.

Flow-through SharesDuring 2008, under the terms of flow-through agreements, the Company issued 1,500,000, flow-through shares and was required to spend $1,725,000 on qualifying exploration expenditures. As at December 22, 2009 this amount had been spent.

16. NET INCOME PER COMMON SHARE

The basic net income per common share is based on a weighted average number of shares outstanding of 100,115,709 for 2009 and 99,823,843 for 2008. Diluted net income per share reflects the dilutive effect of the potential exercise of the common share options outstanding as at December 31, 2009. The number of shares for the dilutive earnings per share calculations for 2009 was 100,685,174 (2008: 99,938,502) and excluded 370,000 (2008: 2,246,250) common share purchase options as anti-dilutive.

17. RELATED PARTY INFORMATION

In fiscal 2009, the Company paid $5,000 (2008: $10,702) to a company whose managing partner is a Director of the Company and $98,500 (2008: Nil) to a company whose president is an Officer and Director of the Company.

These transactions were in the normal course of operations and were measured at the exchange amounts.

18. FINANCIAL INSTRUMENTS – DISCLOSURES AND PRESENTATION

Financial instruments disclosures requires the Company to provide information about: a) the significance of financial instruments for the Company’s financial position and performance and, b) the nature and extent of risks arising from financial instruments to which the Company is exposed during the period and at the balance sheet date, and how the Company manages those risks.

Financial Instruments – Fair ValuesFollowing is a table which sets out the fair values of recognized financial instruments using the valuation methods and assumptions described below:

(in thousands) 2009 2008 Carrying Fair Carrying Fair Value Value Value ValueFinancial assetsHeld-for-trading: Cash and cash equivalents $ 23,702 $ 23,702 $ 8,029 $ 8,029 Restricted funds 2,588 2,588 2,303 2,303Loans and receivables: Receivables 4,022 4,022 4,205 4,205Available-for-sale: Marketable securities 211 211 44 44

Financial liabilitiesOther financial liabilities Payables and accruals 7,322 7,322 7,865 7,865 Convertible 7% debentures 9,483 11,122 9,413 9,838


34

Determination of Fair ValueThe fair value of a financial instrument is the amount of consideration that would be agreed upon in an arm’s length transaction between willing parties. The Company uses the following methods and assumptions to estimate fair value of each class of financial instruments for which carrying amounts are included in the Consolidated Balance Sheet as follows:

Cash and cash equivalents and restricted cash – The carrying amounts approximate fair values due to the short maturity of these financial instruments.

Receivables – The carrying amounts approximate fair values due to the short maturity of these financial instruments.

Marketable securities – The carrying amounts are measured at fair value with mark-to-market gains and losses excluded from net income and included in other comprehensive income until such gains or losses are realized. At December 31, 2009, marketable securities have been valued using the quoted market price to reflect an unrealized gain of $68,000 (2008 unrealized loss: $157,731).

Other financial liabilities – Payables and accruals, obligations under capital leases and the convertible 7% debentures are carried at amortized cost. The carrying amount of payables and accruals approximates fair value due to the short maturity of these financial instruments. The carrying amount of the obligations under capital leases approximates fair value based on an initial fair value of the obligation. The fair value of the convertible 7% debentures is based on the quoted market price.

The fair value hierarchy for financial instruments measured at fair value is Level 1 for cash and cash equivalents and restricted cash and marketable securities. The Company does not have Level 2 or Level 3 inputs (Note 2).

Financial Risk ManagementThe Company is exposed to a number of different risks arising from normal course business exposures, as well as the Company’s use of financial instruments. These risk factors include: (1) market risks relating to commodity prices, foreign currency risk and interest rate risk; (2) liquidity risk; and, (3) credit risk. The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework and establishes and monitors risk management policies to: identify and analyze the risks faced by the Company; to set appropriate risk limits and controls; and to monitor risks and adherence to market conditions and the Company’s activities.

1) Market RiskMarket risk is the risk or uncertainty arising from possible market price movements and their impact on the future performance of the business. The market price movements that could adversely affect the value of the Company’s financial assets and liabilities include commodity price risk, foreign currency exchange risk and interest rate risk.

(a) Commodity price riskThe Company’s financial performance is closely linked to the price of gold which is impacted by world economic events that dictate the levels of supply and demand. The Company had no gold price hedge contracts in place as at or during the year ended December 31, 2009.

(b) Foreign currency exchange riskThe Company’s revenue is exposed to changes in foreign exchange rates as the Company’s primary product, gold, is priced in U.S. dollars. The Company had no forward exchange rate contracts in place as at or during the year ended December 31, 2009.

(c) Interest rate riskInterest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

Financial assets and financial liabilities with variable interest rates expose the Company to cash flow interest rate risk. The Company’s cash and cash equivalents include highly liquid investments that earn interest at market rates. Fluctuations in market rates of interest do not have a significant impact on the Company’s results of operations due to the short term to maturity of the investments held.

2) Liquidity RiskLiquidity risk is the risk that the Company will not be able to meet its obligations as they fall due. The Company manages its liquidity risk by forecasting cash flows from operations and anticipated investing and financing activities. The Company believes it has access to sufficient capital through internally generated cash flows and equity and debt capital markets. Senior management is also actively involved in the review and approval of planned expenditures.

The following table shows the timing of cash outflows relating to trade payables and accruals, capital leases and convertible debentures:

(in thousands) <1 Year 1-2 Years 3-5 Years Over 5 Years Accounts payable & accrued liabilities $ 7,322 Capital leases $ 1,400 $ 1,153 $ 25

Convertible debentures $ 765 $ 12,079




3) Credit RiskCredit risk is the risk of a financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligation. The Company minimizes its credit risk by selling its gold exclusively to financial institutions with forty-eight hour terms of settlement. The Company’s accounts receivable consist primarily of government refunds and credits. The Company estimates its maximum exposure to be the carrying value of cash and cash equivalents, accounts receivable and funds held against standby letters of credit.

The Company manages credit risk by maintaining bank accounts with Schedule 1 Canadian banks and investing only in Guaranteed Investment Certificates. The Company’s cash is not subject to any external restrictions.

19. SUPPLEMENTAL CASH FLOW INFORMATION

(in thousands) 2009 2008

Net changes in non-cash working capitalOperating activities Receivables $ 198 $ (739) Payables and accruals (434) (1,474) Income taxes payable (91) 173 Gold inventory (4,254) (2,366) Supplies and other (164) (427) $ (4,745) $ (4,833)Financing activities Receivables $ - $ 276 Investing activities Receivables $ (15) $ 501 Payables and accruals (109) (369) Supplies and other (41) (107) $ (165) $ 25

Cash and cash equivalents consist of:Cash $ 23,702 $ 7,940Term deposit (2008: 2.85%) - 89 $ 23,702 $ 8,029

Non-cash transactions:Recognition of fair value of stock options and warrants exercised transferred to share capital (Note 13) $ 376 $ 10 Marketable securities received as consideration for properties held for sale (Note 9) $ 100 $ 133 Mining property assets acquired under capital leases $ 364 $ 1,996 Revision to asset retirement obligation $ 212 $ (96)

Other:Interest paid $ 1,080 $ 1,098

20. INDEMNITIES

The Company has agreed to indemnify its directors and officers, and certain of its employees in accordance with the Company’s by-laws. The Company maintains insurance policies that may provide coverage against certain claims.

21. COMPARATIVE FIGURES

Certain comparative figures have been reclassified, where necessary, to conform with the current year’s presentation.


36


22. CAPITAL RISK MANAGEMENT

The Company’s objectives of capital management are intended to safeguard its ability to support the Company’s normal operating requirements on an ongoing basis, continue the development and exploration of its mineral properties and support any expansionary plans.

The capital of the Company consists of the items included in shareholders’ equity and debt obligations net of cash and cash equivalents. The Company manages the capital structure and makes adjustments in light of changes in economic conditions and the risk characteristics of the Company’s assets. In order to maintain or adjust its capital structure, the Company may issue new shares, issue new debt or issue new debt to replace existing debt with different characteristics.

There is no restriction on the ability of the Company to pay dividends other than cash flow considerations. The Company paid a dividend of $0.02 per share on April 30, 2009. Dividend payments in the future will depend on the Company’s ability to continue as a going concern and to generate earnings.

To effectively manage its capital investments, the Company has in place a planning and budgeting process to help determine the funds required to ensure the Company has the appropriate liquidity to meet its operating and growth objectives.

The Company expects its current capital resources and projected free cash flow from continuing operations to support further exploration and development of its mineral properties.

Neither the Company nor its subsidiaries are subject to any externally imposed capital requirements such as loan covenants or capital ratios.

There were no changes to the Company’s approach to capital management during the current period.


Board of directors

Eldon Bennett 2 Managing Partner, Aird & Berlis LLP Toronto, Ontario Eldon Bennett holds a Ph.D. from Duke University and law degree from the University of Toronto. He has taught both political science and law at York University and practices law in the areas of civil litigation and labour relations.

Marc Blais, CGA 1 Chief Operating Officer, Sunset Cove Mining Saint-Lambert, QuebecMarc is a Certified General Accountant and has been Chief Operating Officer for Sunset Cove Mining since 2009. Previously he was President of Inter A World Mining, a mining consultancy firm since 2007, and President of Dynacor Mines from 1993 to 2007. From 1988 to 1993 he worked as a senior CGA and as a financial planner and consultant.

Roger Jolicoeur President, RWJ Mining Consulting Dubuisson, QuebecRoger’s career began in 1965 working in milling operations, leading to plant superintendent of the Kiena mill for Falconbridge. For the last 10 years Roger has been President of RWJ Mining Consulting, consulting on mineral processing as well as building and commissioning plants all over the world.

Brian Northgrave 2,3 Consultant, Trade Facilitation Office of Canada Ottawa, OntarioBrian has been a director of Wesdome since 2007, having been a director of Western Quebec Mines since 2004. Brian is a retired former Ambassador to the Eastern Republic of Uruguay for the Canadian government and has held various foreign assignments while employed by the Department of Foreign Affairs from 1966 to his retirement in 2002. Brian holds an M.B.A. from the University of Toronto, a Diploma of Business Administration from the London School of Economics and a B.A. (Economics & Political Science) from the University of Toronto.

Donald D. Orr, CA 3 Secretary-Treasurer and CFO, Wesdome Gold Mines Ltd. Toronto, OntarioDon Orr is a Chartered Accountant with a B.Comm from the University of Toronto. Don has been involved in the mining industry since 1977. He has been the Secretary-Treasurer and a Director of Wesdome Gold Mines since 1994.

Donovan Pollitt, P.Eng. 3 President and CEO, Wesdome Gold Mines Ltd. Toronto, OntarioDonovan Pollitt has been a director of Wesdome Gold Mines Ltd. since 2006 and is currently President and CEO. Donovan is a Professional Engineer in Ontario and holds a BASc in Mining Engineering from the University of Toronto.

Hemdat Sawh, CA 1,2 CFO Crystallex International Oakville, OntarioHemdat Sawh is a Chartered Accountant, and holds an MBA degree in accounting from York University, a bachelor of science degree in geology from Concordia University and a graduate diploma in geology from McGill University. Hemdat has over 16 years of accounting and auditing experience at Grant Thornton LLP, culminating in the position of principal, where he acted as lead supervisor for auditing teams of businesses with a concentration in publicly listed mining companies. Hemdat also served as Chief Financial Officer for Goldbelt Resources Ltd. for up to two years prior to joining Crystallex as their current Chief Financial Officer.

A. William (Bill) Stein 1 CFO & CIO, Digital Realty Trust San Francisco, California, USASince 2004, Bill has been the Chief Financial and Investment Officer of Digital Realty Trust, an NYSE listed real estate investment trust that owns, develops and manages data centers and internet gateways throughout North America and Europe. Bill has more than 30 years of investment, financial and operating management experience in both large company environments and small, rapidly growing companies. Prior to joining Digital Realty, Bill provided turnaround management advice to both public and private companies. Bill received a B.A. degree from Princeton University, a J.D. degree from the University of Pittsburgh and an M.S. degree with distinction from the Graduate School of Industrial Administration at Carnegie Mellon University.

1 Audit committee member2 Compensation committee member3 Governance committee member

officersBrian NorthgraveChairman of the Board

Donovan Pollitt, P.Eng.President and CEO

Donald D. Orr, CASecretary-Treasurer and CFO

Benoit Laplante, P.Eng., MScAVice President – Operations

George N. Mannard, P.Geo, MScAVice President – Exploration

Senior StaffKiena Complex

Paul Arscott, P.GeoChief Geologist

Bernard BelleyMill Superintendent

David Delisle, CMAChief Accountant

Stephane Dubois, P.Eng.Chief Engineer

Denis EthierMine Superintendent

Michel Lafleur, P.Eng.Project Superintendent (Dubuisson)

Sylvain LehouxMine Manager

Daniel PetitclercMaintenance Superintendent

Nadia TanguayChief Assayer

Caroline ViensHuman Resources

Eagle River Mine

David BoulayMaintenance Superintendent

Allan MacDonaldOffice Manager

Don MacFarlaneChief Assayer

Don PattersonMine Manager

John PlecashChief Geologist

Paul RobitailleMill Superintendent

Gilbert WahlSafety/Security Director


Annual MeetingThe Annual Meeting of Shareholders will be held at:TSX Gallery130 King Street West,Toronto, Ontarioon Monday, May 10th, 2010 at 4:00 p.m.

transfer Agent and registrarComputershare Investor Services Inc.

Toronto, Ontario

Tel: 1.800.564.6253 or 514.982.7555

www.computershare.com

AuditorsGrant Thornton LLP

Toronto, Ontario

www.grantthornton.ca

legal CounselHeenan Blaikie LLP

Toronto, Ontario

www.heenan.ca

Stock exchange listingToronto Stock Exchange

Symbol: WDO

www.tsx.com

www.wesdome.com

head office8 King Street East, Suite 1305

Toronto, ON M5C 1B5

Tel: 416.360.3743

Fax: 416.360.7620

email: [email protected]

Kiena Mine950 chemin Kienawisik, C.P. 268

Val d’Or, QC J9P 4P3

Tel: 819.738.4031

Fax: 819.738.5452

eagle river Mine93 Mission Road, P.O. Box 1520

Wawa, ON P0S 1K0

Wawa Office

Tel: 705.856.2718

Fax: 705.856.7173

Mine Site

Tel: 705.856.2721

Fax: 705.856.2879

Wesdome 2009 Annual Report

Documents

Transcript of Wesdome 2009 Annual Report